Friday, January 21, 2011

The AAP numbers are out for November 2010. They clearly show continued ebook growth but now also bookstores are losing sales to ebooks. Midlist sales were hit hard at the bookstores. The time is past for midlist authors to start moving to ebooks. I suspect Children’s books will be next, but there is nothing in the data to suggest that.

The reports from small pub/indie authors strongly support the report spike in ebook sales starting November 20th. ( From the comments on JA Konrath’s blog. see M. Louisa Locke’s post) I expect December results to be even better than November for ebook sales. However, from later comments over at JA’s blog, I am not expecting a large December to January spike in ebook sales.

I have seen some really bad articles on this month’s press release by people who just read the press release. Please look at the graphs. Each one tells a major story. I’m going to avoid talking numbers as I’ve seen a half dozen articles online that tried to confuse the reader and obscure conclusions. We’re going into chart reading mode after the introduction.

First, a few notes on the numbers:1. AAP only has 14 of 88 publishers report ebook sales.2. There are over 400 publishers3. “Indie Authors” are not counted in the numbers4. I estimated sales of indie books.

I really only have two data points on indie author market share, but they're quite useful for estimating the market share of small publisher/indie author ebook sales:1. December 2009 ‘boutique’ books were 10% of ebook sales.2. By scanning the December 2010 ‘bestseller lists,’ I conservatively estimate that 20% to 33.3% of ebook sales are small publisher/Indie Author.3. I take the 20% market share for small publisher/Indie author for December 2010.4. I then just interpolate linearly and I will extrapolate linearly until there are better numbers that I can reference.

The first graph has ebook sales. The blue line is the reported data for the 14 reporting AAP publishers. The green line is my overly conservative estimate of the real ebook sales. If anything, I think small publisher/indie author sales are walking away far faster than what I graphed… but I strive to never revise my numbers down. 

For December, I expect the estimated ebook sales to break $70 million (possibly over $80 million, but note: my ‘official prediction’ is just over $70 million ebooks in December 2010). We’re trending for similar sales this month (January 2011). It is possible that for January 2011 we will temporarily exceed Hardcover sales (but only for a month with historically weak hardcover sales).

That comment transitions us to the second graph; I added trade book sales by my calculations (summing up AAP data). I see more and more web sites calculating trade sales by my method as the AAP numbers (what is published just does not add up). I also find that the annual numbers on ebook sales are always *higher* than the sum of the monthly reported AAP numbers (by about 3%).

The third graph is my calculation of ebook market share. I’ve seen numbers matching my own on the internet. Market share fluctuations are driven by ebook market growth and the incredibly noisy data of ‘trade books.’ My estimate is that we’ve broken 10% market share and we won’t look back. Pbook sales the first few months of the year are too weak to impact the trend. By July, ereader/ebook growth will ensure market share is well above 10% for ebooks.

Monthly comparisons with Noise bands:

A comment on the next charts: Monthly pbook sales are noisy. So I plot bands. Only when data is outside of a band does it mean anything… FYI, analyzing noisy data is my specialty, just be glad I’m not going into ‘design of experiment’ details.

Ebooks are at Mass Market Paper Back (MMPB) sales levels. With Small pub/Indie author sales, well past. The days of MMPB selling better than ebooks are over. Sadly the drop in MMPB sales points to the weakness of bookstores. B&N moved in toys which will forever impact midlist sales. Borders weakness is also going to drive fewer midlist purchases.

What about adult hardcover? Sales were good! It looks like stores delayed buying in October and made up the difference in November. I suspect a huge fraction of the buying was big box retailers. With the publisher drive to best sellers, I see the strong increase in hardcover sales a negative for midlist books.

Paperbacks were also weak. I expect that by the July 2011 data (not my July article, but when the AAP releases the July 2011 data) we will see ebooks passing paperback sales. Heck, probably passing adult paperback plus MMPB! I have some seasonal charts that show the change in sales clearer (later in this post).

I posted Children’s sales (combined hardcover and paperback) to illustrate that there is no evidence that ebooks have yet to affect these sales. But after starting my toddler on Ipad apps… I think this sector will take a hit. But this is a case where the tablets, including the color nook, will dominate. For kids, color and animation are the key (in my opinion). My daughter really has a leg up learning the ABCs from her IPad app…

Seasonal charts:

I graph the same data a different way to tell a different story. In these graphs, each year is a different line. The 1 is January, 3 is March, 5 is May, etc. This is so that we can see year over year growth or declines.

The first seasonal graph is ebooks. Please notice the constant year over year growth. Also notice the slope up in increasing. So much for any strawman arguments that growth will slow… There is some seasonal variation, but the trend, since 2008, is up and up. The next chart is a bar chart that shows the huge month of month growth. I expect slower growth once ebooks are above 40% market share. Until then, growth rates should increase.

Ok, now to show how pbook sales are dropping. I’ll start with paperbacks. Notice the orange line with circle markets started off 2010 ok and then fell? It looks like the K3 and color Nook took the wind out of adult paperback sales.

Looking at hardcovers, the data doesn’t look too bad (again, 2010 is orange with circle markers). Hardback sales have been poor since July. A slight stronger November doesn’t erase that. It looks like bookstore financial health is starting to impact hardback sales, but not drastically.

The last chart is the MMPB sales plot. MMPB sales have been weak and declining. I wonder how much of this is due to fewer MMPB sales at airports and to mass transit commuters. Anecdotal evidence is that road warriors and daily mass transit commuters have embraced ebooks early. Either way, this does not bode well for print midlist Romance, sci-fi, and other MMPB genres.

The graphs show one clear story. Ebooks are growing fast. Sadly, their growth is now taking the wind out of pbook sales now. It has only been obvious for a few months (per the data), but it is obvious that enough readers have made the transition to impact the bookstores. With the weakness in paperback and MMPB, I suspect midlist sales are being hit hard.

The only way I see reversing these trends is POD. I really wonder why B&N isn’t ripping out the CD/DVD section and putting in POD machines. Intense readers want variety. POD is the only way I see bookstores providing that variety. I have mostly read midlist authors. For those that love to read on paper, unless POD has a spectacular growth year in 2011, they will be driven to ebooks in 2012/2013.

What is the conclusion? The game has changed. The current bookstore model is broken. It almost doesn’t matter what the data is for December… The trend is that clear. Pbooks will have less variety in 2011 and at some point there will be a ‘tipping point.’ The only question is will that ‘tipping point’ be due to ereader growth or pbook contraction?

Got Popcorn?Neil

PsThe comments in my previous post have some very valid points on POD. I’m also waiting for Amazon’s quarterly report. I expect to find that we’re still seeing about 35,000 new books added to Kindle per month. But what if there is an upside? I hope you found it worth it to read this very long article.

Monday, January 17, 2011

"1.Ebook sales rise, unit consumption surprises – Ebooks sales will approach 20% of trade book revenues on a monthly basis by the end of 2011 in the US, yet the bigger surprise is that ebooks will account for one third or more of unit consumption. Why? Ebooks cost less and early ebook adopters read more."

Anyone who reads JA's blog will agree with:"4. Self Publishing goes from option of last resort to option of first resort among unpublished authors – Most unpublished authors today still aspire to achieve the perceived credibility and blessing that comes with a professional book deal. Yet the cachet of traditional publishing is fading fast."

There is more. The main point is that 20% of trade dollars... I disagree. I see the US market on a trend to achieve that in 2012. Total books later...

I should be clear, my predictions are for the US market and I predict in dollar, not volume, revenue.

Some tidbits worth noting:" Ebook prices are significantly lower than those of printed books, even though the actual cost difference for the publisher is on the order of $1 to $3.50. "

" Revenue still favors dead trees." Note: I happen to agree. So what? The 'trend is your friend.'

Basically the 2nd link goes on to note that publishing houses will invest more in big name blockbusters and less on other titles.

I've noted before that midlist is what will drive people to ereaders. It used to be that Borders and B&N stocked midlist to attract 'browsers' in to buy the best sellers in their stores (instead of Costco, Walmart, Walgreens, Safeway, etc.). In my opinion, there is no bookstore market without midlist. Time for B&N to set up POD coffee shops... seriously, change the model folks! The old one isn't much of a life raft.

That link predicts a doubling of Kindles in 2010. (They note, a conservative prediction.) I think it will be more than a doubling of ereaders... With many additional tablet, Ipod touch, cellphone, and 'other device' readers added. The question is how much will the ebook market grow?

I suspect it will slightly over double! Partially due to the issues with Borders. I have at least a half dozen coworkers who bought either a Kindle or Nook due to the concerns about Borders. I would have thought they would drive the extra few miles to a B&N... apparently the news has 'pushed them' to buy an ereader.

So the question is, when does the 'economy of scale' shift from print to ebooks? I'm stated before at 20% of the market, the adoption rate will accelerate.

A little math (bear with with)~ 4 million ereaders was 3% of the market in 2009.~ 20 million ereaders is about 10% of the market at end 2010.

So before, one needed 1.3 million ereaders for each percent of the book market.Now, we need about 2 million additional ereaders to add a percent of market share. This actually makes sense; on average, new ereader buyers purchase and read fewer books per year.

There will be anywhere from 15 to 40 million ereaders sold in 2011. (I know... not exactly a precise prediction.) I estimate it will take 3 million ereaders for each percent of additional market share. I'm also going to assume that 20% of ereading is on 'other devices' is a constant, so I'll ignore their sales.

That implies at the end of 2011, ebooks will be from 15% to 23% of the market. There is a reason I keep predicting the 'tipping point' in 2012. It is unlikely we'll break 20% in 2011. I'd love to see 40 million ereaders sold next year. I'm not going to hold my breath. But there is one chance: a marisol or color e-ink tablet & cell phone hit the market.

I hope to be proven conservative in predicting ebook growth again. (I know assuming that other devices doesn't grow beyond 20% is keeping a large number of ebook sales out of the prediction.) This keeps us on track for ebooks to be 1/2 the market in January 2013. :) For once the 'tipping point' is hit, the market shift will be fast.

Got Popcorn?Neil

PsI haven't gone into how bookstore 'consolidation' will drive customers to ebooks. I'm not really interested in 'dancing on a grave,' but it is a trend that is going to happen. I suspect 300 to 500 bookstores will close in 2011 (net, in the USA). :( The customers will go somewhere...

PPSNote at the end of the 2nd link that for 18 of 50 of the best sellers, the ebook outsells the pbook. What happens to the 'economy of scale' of print books when that is 40+ out of 50?

If that number proves accurate, it would greatly outpace recent predictions from research firm Gartner, which pegged worldwide e-reader sales at 6.6 million units in 2010, a 79.8 percent increase from 2009. The firm also suggested that e-reader sales will rise another 68.3 percent in 2011, to more than 11 million units.

“The connected e-reader market has grown dramatically during the past two years, driven by sales of Amazon’s e-readers, primarily in North America,” "

My new comments:That implies we could see 13 to 15 million Kindles in 2011. :) I'm happy to see Nook, Sony, and others gaining traction.

I did not expect Sony to come in at a quarter of Amazon's ereader sales. Kudos to them. The only question that remains is the true number of 2010 Nook sales. I'm suspecting I might have been optimistic... but based off B&N sales by Indie authors, was I? Perhaps I'm just being to anal about precision. ;)

Either way, we're looking at 15 to 25 ereader sales in 2011. We'd see more if an e-ink or Marisol screen with 30hz video made its way to the market. But all this 're-analysis' does is reinforce the true tipping point is later: 2012.

Thursday, January 13, 2011

Take a moment to realize it is a snapshot from May. The information is much better than the 'hand waving' I see on e-books from so many. But it does have some minor contradictions within: e.g., Amazon cannot sell 8X as much as the rest of the market if B&N has 20% of the market... But if you read it as a whole, it is *very* informative.

In section 2 page 10 it notes that 'special interest' books were 10% of the ebook market in 2009! I take that to mean small publisher/Indie authors were 10% of the US market in 2009. I blogged that by December 2010, small publisher and Indie authors were 20% to 33% of the market.

This is important! The next release of the AAP number I will be adjusting the data based upon:1. December 2009 being 10% non-reported ebook sales (non-AAP 14 reporting publishers).2. December 2010 being 20% non-reported ebook sales (non-AAP 14 reporting)

I will be assuming a linear market transition (lacking other data points). Now, as I noted before, Indie authors/small publishers could already be as much as 1/3rd of the ebook market. But I'll be conservative. For I'd rather be proven to not be 'excited enough' about ebooks.

Just a teaser graph using the October data (released in December):

I'm expecting, based on the comments at JA's blog that November and December will see quite the spike in sales.

If you do read the first link in this blog, it goes into how 'demand for variety' is driving readers to ereaders. It is one reason the above graph lists the books available for sale on Amazon.com.

I'm still amused how ebooks out did this pdf. Oh, I disagree with the 2011 sales prediction. I think ebooks will do much better.

Monday, January 3, 2011

Quick summary:20% of the customers buy 80% of the books. Those customers demand the greatest variety. If 'long tail theory' holds out, what the publishers put out could only meet half their demand (at best). So the most 'intense readers' must transition to ebooks for the variety.

The 80/20 rule is the Pareto principle . 80% of the market is met by 20% of the participants. In effect, the publishers supplied the 20% that was enough to meet 80% of the market demand. But wait... they had an imperfect filter, so they were supplying something less than the 20% of the content that would meet 80% of the market demand.

But then we get into Long Tail Theory. As the cost of distribution/content creation drops. The top 20% of the supply only controls 50% of the purchases. That is the theory that is driving Indie ebooks. For 50% of the market is 'up for grabs.'

Wait! 20% of customers are 80% of the sales too. The most likely customer to demand the variety will be the top 20% of customers. Ugh oh... (for the 14 AAP publishers). 80% of the market could go to ebooks as there will be no choice for over half of their content purchases! To

Will the theory be proven? We've seen this before. Crown Books crushed Indie bookstores by offering more variety. Borders and B&N then crushed crown books by offering more variety. How do you beat ebooks for variety?

Revenue Estimate I've already blogged how I think Indie authors are 20% to 33% of ebook market share. Indie authors also charge less than the big6. Almost 1/3rd of what the big6 charge by my best quick estimate. So 1/3rd*10%*20%=0.6% of the revenue.

But that revenue is gaining quickly and soon more Indie authors will have a 'stable of books' selling in the $0.99 to $6.49 range. If you price higher, you had better have *good* and *long* novels. ;)

Founder of Smashwords is quoted as saying: " “Ebooks sales will approach 20% of trade book revenues on a monthly basis by the end of 2011 in the US” – and account for at least a third of those books that actually get read."

First, I would watch Samsung. Their first effort into ereaders isn't that exciting, but they have a history of innovating. They are also an incredibly low cost producer of electronics.

The second is the growth in tablets as ereaders. My sister and father still have Kindles, but find they read more on their Ipads. My wife has also started reading on the Ipad. The more 'intense readers' go with the Kindle App and the less intense the Ibookstore. With only one volume tablet on the market from a 'high cost' vendor, it isn't that exciting a market yet. I'm seeing the large numbers of Android tablets coming out this year, including Vizio (TV maker). So I expect tablets to be the majority of new readers in 2011. That isn't to say Kindles/Nooks will not sell well... They'll certainly sell to people who read 20+ books per year. But I think that most people will buy a tablet and then discover they can read on them. Same line of thought goes with smartphones.

Saturday, January 1, 2011

" e-book market share of the science fiction and fantasy sector globally for the 10 weeks since June was 10%, more than treble the genre’s market share of print book sales. The share taken by romance and saga books was 14%, seven times its print market share."

Finally some numbers on the jump to ebooks by Romance and Sci-fi readers.

Note those September numbers. Only 2% of print is Romance!?! Only 3% of print Sci-fi? This definitely implies the readers of certain genres are embracing ebooks faster than others. (Otherwise book and digital market shares would be the same.)

I see ereaders increasing reading. Just as when Borders and B&N storming into the market increased reading.

Got Popcorn?Neil

ps 1/2/2011

Wait a second...Sci-fi is 10% market share, but 13 of the top 20 are Indie... Best selling are Big6 so lets discount Indie market share by 50% or 10%*13/20*50%=3.25% of the *total* book market is just due to Indie sci-fi authors.

For Romance, 19 of the top 20 were Indie! Top selling season of the year and only Nora Roberts was holding 'old school ground.' I see ZERO reason to discount in Romance, but I'll grant the big6 another slot as I might have picked a fluke day:14%*90%=12.6% market share.

Just looking at two genres, Indie authors have 15.8% of ebook market share!

What about other genres?Mysteries and thrillers was Stieg Larson, John Grisham, James Paterson, Dean Koontz, etc. with 5 low ranked (of the top 20) Indie authors. So low Indie market share here...

History had few well selling Indie authors...

Gay and Lesbian seems to be 100% Indie (what is the market share, out of curiosity?)

Final conclusion: Indie authors are somewhere between 20% and 33% of ebooks! Most likely on the low end of that estimate, but without numbers it is difficult to bracket further.

Now wonder Macmillan and other big 6 publishers tried to slow ebooks early this year. Their overpricing backfired! Thankfully!

PSS on 1/2/2011Thoughts for the day:1. Is Ebook Indie/Small pub Sci-Fi, in terms of books SOLD (excluding free ebooks/used pbooks) outselling the AAP 14 publishers in Sci-Fi? By outselling the AAP 14 publishers, I'm including pbook retail as well as ebooks! They are of the same order of magnitude, but the numbers are too 'fuzzy' to say more than that.

2. It is obvious that Indie+small publisher Romance ebooks outsell, in units and *dollars*, the 14 AAP publishers that report ebook sales. By this I mean pbooks as well as ebooks volumes and bucks! 1st link of this posts notes the 'cannibalism' of print sales.

I cannot believe I missed that informative link... (I Google daily to find out more on ebooks.)

Since the X-axis (timeline) varies for every technology, I took two points from e-books, roughly where we are now and how long it took to achieve 2.5% market share. There are different measures and noise in the data, but it looks like end of April 2009 is my best estimate. (There is way too much noise in the data and AAP revises old data... so an exact time is tough without the raw data.)

That curve shows about 35% market for e-books in January 2013. :( 50% would be January 2014 per the Rogers curve. :(

Now I've already made my prediction public in numerous blog comments, so I'm stuck with the prediction. Technology adoption isn't a smooth curve... But perhaps I was a little optimistic. So we might see one third of the dollars in e-books at the start of 2013... But I still have a hunch it will be half.

Either way, I see tremendous market growth and huge opportunities for Indie authors.

About Me

I love to parent, read, ski, travel, and scuba dive. I've switched from blogging about real estate to ebooks. As much of an optimist as I've been on ebooks, their growth is typically better than my predictions! My main prediction is 50% ebook market share by end of January 2013.
Any of my charts may be re-used with just a link to this blog (blog or specific post is up to whomever borrows the graphs).
Neil